The recent experience of the European Monetary System has once again brought the problem of international monetary instability to scholars’ and policymakers’ attention. In 1992, German interest rate hikes meant to address growing inflationary pressures within Germany sparked speculation against the pound and lira that eventually led England and Italy to devalue their currencies and to leave the European Monetary System’s Exchange Rate Mechanism (ERM). A year later, the fluctuation bands linking the participating currencies of Europe were widened from 2.5 percent to 15 percent, rendering the system almost as loose as floating exchange rates.